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If you’ve been awarded a judgment, or settlement, after being involved in a car accident you might be wondering if that money is taxable. In most cases you won’t have to pay taxes on any awards you receive from a car accident case. However, as with most rules in law, there are exceptions. While the only person who can give you accurate tax advice based on your unique situation is your financial adviser or tax professional, the following information may be of help to you in determining whether or not you’ll be taxed on your car accident injury settlement.

Funds Received for Property or Vehicle Damage

Whether you’re considering the cost of repairs paid, reimbursements for rental car costs, or other compensation you’ve collected for vehicle or property damage after an accident, you can safely assume it’s not taxable. None of the funds you receive due to property damage or damage to your vehicle can be taxed.

Income Reimbursement

If you had to take time off work because of the injuries you sustained in a car accident, any income you are awarded to cover the cost of that lost income is, by and large, subject to taxation. The logic behind this is that your regular paycheck is taxed, so there’s no reason that the income you receive for being unable to perform that job shouldn’t be taxed accordingly. If your settlement offers you several types of awards, only the portion of the settlement set aside for covering lost wages will be treated in this manner. In other words, if you receive a settlement that covers $5,000 of lost wages and $15,000 for property damage, you’ll only have to pay taxes on the $5,000.

What About Punitive Damages?

Punitive damages are rarely included in settlements resulting from car accidents. Punitive damages are a sub-category of personal injury damages, and are intended to deter future irresponsible or poor behavior on the part of a defendant. In other words, they are used to punish the defendant more than they are to reward the plaintiff. However, if you are awarded punitive damages in your car accident case, you can safely assume that these funds will be taxable.

While the information above represents what typically happens in a car accident case, only your personal injury or car accident lawyer can tell you exactly what to expect. Always obtain legal advice before you sign, settle, or go to court. Be sure to go to the doctor immediately after you’ve been involved in a car accident, as injuries can often show up later. Also, going to a doctor provides documentation that will be helpful to you later on. Contact a personal injury lawyer to make sure you’re getting what you’re entitled to, and address any tax-related questions with the legal professional you choose to work with.


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